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MVNO Models

ESP MVNO, Full MVNO, ad-funded MVNO, social MVNO?

There have been numerous MVNO models banded about over the years, and it is a topic that comes up quite often when chairing events, or moreover, when we are helping MVNOs raise finance / justify what they are doing to investors, so think it is worthy of its own page...

Firstly, there are two (or three!) definitions of models used within MVNOs:

1) Infrastructure / MNO agreement models, e.g Full MVNO, ESP, etc
2) Go to market models; brand, supermarket, ethnic, etc.
3) The third is a subject of debate: business models; originally there was retail minus, then cost plus, and now potentially even partnership models. In essence, all mature, likely to succeed MVNOs, excluding the odd niche, are cost plus. Let's not of course forget the very successful JV (joint Venture) model as well.

What we have seen is exactly this, since about 2007, the lines between where and MNO ends and the MVNO picks up or vice versa has blurred. Those of you who have recently done MVNOs will now me more familiar with a matrix style spreasheet, whereby those elements that are clearly on the MNO side are coloured one colour, those on the MVNO side another, and those that are shared are split diagonally exactly as the line above predicted. Life is good when you predict something in a high-profile, best selling report by a major publishing house - it was one of their top-5 selling reports at one point in 2006 (no pressure!) and it turns out to be right!

So what caused this blurring of these models?

1) maturity and trust - most MNOs have built some sort of platform(s) to support wholesale
2) connectivity - we are now (finally) connecting over GigE, but its the STM level combined with IP services such as sigtran as opposed to SS&, diametre vs. camel and SIP vs. Trunk that really help move things along... and now we are all IP and MNO interconnect agreement templates look like some manuscript you found in the museum, charting 20 years of mobile network connectivity!

Future MVNO models

Future MVNO models are flexible in the infrastructure approach

The Brand

We worked on the very first MVNOs and soon after Virgin launched the MVNO was stuck with the Brand moniker... Its no doubt that the brand is important, after all, MVNOs are all about wholesale and wholesale is otherwise know as "distribution" or "branding" or the two together. Indeed many disagree over the definition of an MVNO and much time is wasted on the matter, but we are all agreed that at the very least the MVNO owns the brand (and the distribution) parts of any MVNO value chain...

With that out of the way we can move forward with why this happened and the problem with it. Virgin Mobile was started by a company (for want of a better word) that is not in fact a company, but a brand that licences its brand to other companies for exploitation. This brand spent a lot, a lot of money on its brand in this space and in doing so convinced everybody else that without a brand and furthermore then spending tens of millions promoting that brand in the mobile space, you can be nowhere in MVNO... It worked, and still to this day the first round of any due diligence on an MVNO is explaining yes again "no you do not need to spend 10's millions to get an MVNO". Let's be clear, tens of millions above the line and infrastructure is the way to get 2 million customers in the time you expected to get 200,000, but it in now way guarantees success, as Blyk and Easymobile showed. Whilst Virgin Mobile were busy saying its all about the brand however, Tesco Mobile was starting out and was all about the discount, see discount model below...

What else to say on the brand, well, no, you do not need to spend a fortune on branding, however you do need to have a brand, why? Well, first off, from the off, you need to negotiate with your MNO and your partners, without a brand this is tying your hands behind your back and is not only the first major hurdle I have consistently encountered with MVNOs as you guide them along the path from conception to launch and beyond. This is where pretty much all MVNOs that fail; fail.
So it is all about the brand after all, just this has to be in line with what you are doing, how big your market it, how you reach them, etc. This can be as little as a logo and a facebook page, to a branding exercise, to licensing a brand from the likes of Virgin to help your MVNO be a success, or even purchasing an existing brand. Finally, it is very important for not just the MVNO, but the MNO to take into account up-front that each brand has a brand equity, which will be worth more or less customers over time: a given brand may be able to attract 10,000, 100,000 or 1,000,000 customers at any given time within the realms of an MVNO being profitable - that is having a lower cost of subscriber acquisition (SAC) and a lower churn in that market that the MNO's own brand... after that you can decide whether to attract more customers and increase your acquisition cost (and with it churn as your brand starts attracting more freeloaders vs. apostles) or whether to just create another brand with the same formula (here lies the MVNE/MVNA model...)

I see a lot more brands coming into the market at some point at various levels: smaller brands at MVNE level, while the MNOs will no doubt look to leverage more, bigger brands at the direct level, albeit only 1-2 big brands over 2 years or more, while the MVNE will see even MVNEs focusing on brands in certain markets.

Discount / Supermarket MVNOs

The discount MVNO has been around as long a the brand MVNO, in fact Virgin Mobile was in many ways a discount MVNO, with its first above the line marketing campaign with actor Ricky Tomlinson from the very discount orientated Royale family sitcom walking round (Liverpool?) docks asking himself "£25 quid, every month... for what?". The ad was very clearly aimed at the fact that the MNO model made you pay the same amount every month, no matter how your finances where, and usually (in the UK at least) to subsidise a new phone you may not need or want. And here is the twist that escapes most: The reality is that discount MVNOs are not necessarily discount in that they are not necessarily cheaper, they just let you buy mobile in a way that let's you budget better. Our OTA provisioning systems show this, with many higher price bundles and data services failing due to lack of spend, but lack of credit at the time of requesting that spend! This brings us nicely onto my other pet rant: the Ad funded MVNO

Ad-Funded MVNO

The ad based MVNO model has had a bad start in many ways: first there was Blyk - not just its failure, but prior to this, their management travelling around first class everywhere dotcom style in a recession did not bode well in the industry either. Secondly and moreover they chose the wrong marketing model at the wrong time. In hindsight it is easy to say this, but at the time I thought it was high risk doing campaign based ads and would have gone with display ads. This is mainly from having seen MVNOs, MNOs and even handset manufacturers spend significant time and money on honing their product for and advertising to a certain community / target audience to then end up with a completely different one. One example was tens of millions on the 25-35 market, only to end up with a much larger (very successful) audience, but with an average age of 43 - this is fine in general mobile business as the 35-45 spend more, and even in display ad world this would be great - but what would you do with 18 months of work in ad inventory for the 'yoof' sector when your actual base turns out to be very non youth??? Additionally, delivery via SMS and MMS is fine as an MNO where the on-net cost of delivery is a sunk cost, but as an MVNO you are in theory paying for the delivery mechanism one way or another, as the MNO is in the business of selling that sunk cost to the MVNO, not giving it away for the MVNO to make money on... The potential is still huge and now its within the very capable hands of its host MNO, the ad world has moved on, has more experience in mobile and the opportunities are all very present and correct.

Secondly the ad market has had some false starts and has been in flux. One trend that has been consistent is that display ads are on the up, and within that trend mobile is also growing. The other consistent trend has been the tremendous work of O2 media in growing O2 more first to 2 million customers last year and then trebling this to 6 million in the following semester.

So, to be fair, the key issues with Blyk were that they were a) ahead of their time, b) using campaign focused marketing as this market collapsed and c) the handsets were just not there to support the model. With data now being a priority, handsets with big shiny screens almost ubiquitous, the time is right. The only remaining issue is marrying the telecoms world with the advertising world, it can be done, as O2 media has proven.

The ad funded model sits well not just as a fully funded model, but also as a way to enable certain services, such as data, or moreover, certain services to certain customers: this sits in the MNO as being able to allow some users, like the many who are lured to an android or an iPhone but don't use or cannot initially see the value in the data to justify its expense (they will convert up) or in the MVNO as being able to finally bridge that jump to data, being a very useful ROI tool, as we have proven with our simple display ad portal with MVNOs.

In this sense, we should see MVNOs, and indeed MNOs, funding individual services, like data or messages or voice calls, as well as those looking to provide a fully ad-funded service.

Many thanks for your comment, its an interesting question and one that comes up regularly when x model fails. There are two things to take into account when assessing a failed model or MVNO:

1) 50% of all new companies fail, MVNOs should be no different and in fact in most countries I have worked in have a lower fail rate

2) most MVNOs either over or under achieve their weekly / yearly targets (by =/- 100s% yet people still do business models with less than 50% variance... this inevitably builds in "problems" where the model cannot grow or falter for any period of time. All the MVNOs I have managed the rollout of are still in business and it is through being obsessive with the fact that operationally and financially they can work and survive way outside of their target sales - this starts with the network agreement (MRC and forecasting schedules principally here) all the other agreements, especially supply of SIMs, handsets (if any) and most crucially anything you are giving away in lieu of or as part of your marketing budget (handsets, or in this case data in exchange for ads).

Both of these elements like handsets and free data for ads, have complexities in the supply chain that make scaling up or scaling down difficult, and agreements that can have min/max volumes, so you would need to swap and change supplier quickly while scaling a business.

As long as these are managed properly this should not be an issue, and their is WAY more life in the ad funded MVNO model: with the likes of twitter pushing free access, google's balance sheet and the need to tie services into other business models (amazon kindle, etc) we will see way more free, hybrid and freemium ad funded MVNOs in my opinion.

I'm curious about whether we will ever see MVNOs differentiated by network QoS - eg low-latency gaming MVNO, prioritised enterprise-MVNO, VIP public safety MVNO for police/fire service roaming in from a private LTE network etc.

In theory, this would seem to be a great use for the capabilities of LTE networks & EPC cores, if Neutrality regulations permit (should be OK for non-Internet usage like public safety), but equally I can imagine it being expensive & costly to set up. Could also be problematic without full coverage of LTE, as QoS capabilities of host networks may be poorer on legacy 3G infrastructure. May have to wait another 5 years for virtualised, multi-tenancy software defined networks....

hey Dean, good to hear from you again, don't think we have spoken since we used to chair the public wi-fi / 3G conferences????

The last MVNO agreement I negotiated had QoS for different throughput levels for the MVNO LTE, so doable it is, however coverage is an issue as you say. Having said that, as a business user, when I have a few minutes between meetings in cities I do get very frustrated like today in the centre of London I have been on GPRS for the whole time in W1 and SW3 and not got my emails until in the next meeting rather than between meetings and would happily pay to have priority over students sharing their dongles or whatever they do to hog bandwidth all day :) so I would be very surprised if there were not a market for this for an LTE MVNO.